Kodiak Oil & Gas Corp. has entered into a definitive Exploration Agreement with Oklahoma City-based Devon Energy Production Company, L.P., a wholly owned subsidiary of Devon Energy Corp. As part of the Agreement, Kodiak and Devon have set forth terms and conditions that create an Area of Mutual Interest (AMI) for the exploration, leasing, and development of certain of Kodiak's Vermillion Basin, Wyoming oil and gas properties.By June 30, 2008, Devon, as operator, will commence the drilling of the first of three proposed wells to test the productive potential of the Baxter shale formation within the participation area at Devon's sole costs and risk. All three wells are scheduled to be commenced by November 15, 2009. Upon completion of each well, Kodiak will have a 50% working interest in each of the three wells proportionately reduced to the interest of jointly held leasehold in the event of third-party interest.
The initial three well locations will test the Baxter shale productive potential in the northern portion of the AMI.
By drilling the three wells, Devon will earn, among other considerations, 50% of Kodiak's leasehold interest to all depths within the AMI, excluding any leasehold already jointly held by and between Kodiak and Devon and any existing Kodiak wellbores.
As a result of the Agreement, Kodiak's interest will total approximately 16,000 net acres in Wyoming's Vermillion Basin, excluding farm-in acreage that can be earned under existing agreements. The AMI will expire after a period of five years, unless extended by mutual agreement of both parties. On a going-forward basis, either party acquiring an interest or lease within the participating area must offer the other party a 50% proportionate share of that lease.
Separate to the above described three-well program, Devon will participate for one-half of Kodiak's 26.67% interest (13.33% net to Devon) in the Whiskey Canyon #3 well, a Baxter shale test located in Sweetwater County, Wyoming which reached total depth of 12,280 feet on January 10, 2008.
Commenting on the Exploration Agreement, Lynn Peterson, Kodiak's President and CEO said: "Today's Agreement with a leading super-independent like Devon provides important technical expertise that we can leverage to help further refine the drilling and completion techniques utilized in the basin as we move together toward the development phase. As a result of the Agreement with Devon, Kodiak will be able to allocate additional 2008 CAPEX to our growing Williston Basin Bakken oil play where strong commodity prices should contribute to meaningful cash flow. Kodiak has assembled a significant acreage position in this emerging play and we are now shifting our focus to the commencement of drilling operations in the coming months."
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